Morning Report APAC: Fed flags two rate rises; USD rallies
- Asian markets opened largely on the back foot this morning
- However, Japanese shares bucked the trend to climb in early trade
- Remarks from Fed officials on Friday pushed up the dollar index
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time; GMT+8)
Federal Reserve speech
Fed Chair Janet Yellen suggested that a case for a rate hike increased but it will still be data dependant:
- In light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.
- While economic growth has not been rapid, it has been sufficient to generate further improvement in the labour market.
- The Fed expects moderate growth in real gross domestic product, additional strengthening in the labour market, and inflation rising to 2% over the next few years. Based on this economic outlook, the Fed continues to anticipate gradual increases in the federal funds rate will be appropriate over time.
- Our decisions always depend on the degree to which incoming data continues to confirm the Fed’s outlook.
The main market mover came from the interview of Fed Vice Chairman Stanley Fischer on CNBC when he was asked: “should we be on the edge of our seats for a rate hike as soon as next month and should we be on the edge of our seats for more than one rate hike this year? He replied: “I think what the Chair said today was consistent with answering yes to both of your questions.”
The GDP number for Q2 came in at 1.1% down from 1.2% in Q1. Household spending grew at a 4.4% pace, revised from an initial estimate of 4.2% as expected and added 2.94% to GDP growth. The biggest downward revisions compared with initial estimates were in state and local government spending, inventories, net exports. Gross domestic income climbed 0.2% and corporate pretax earnings fell 4.9% from a year earlier; they were down 1.2% from the prior quarter.
Wholesale Inventories stagnated this month down from an increase of the downward revised 0.2% the previous month.
The University of Michigan consumer sentiment dropped to its lowest level since April at 89.8 (Exp. 90.8).
Bank of Japan Governor Haruhiko Kuroda won’t hesitate to boost monetary stimulus if needed, he reiterated at Jackson Hole. “There is no doubt that there is ample space for additional easing in each of the three dimensions,” he said. “The bank will carefully consider how to make the best use of the policy scheme in order to achieve the price stability target."
- The USD rallied aggressively following the comments of both Yellen and Fischer. The main reaction came after Fischer's comments that the Fed could consider two rates hikes this year.
- USDJPY bounced from the strong support of 100 but should find some selling interest ahead of the resistance at the 50d MA (102.76). However, USDJPY got an extra boost higher following the news that Japan’s GPIF (world’s biggest pension fund) said on Friday that the domestic stocks only accounted for just 21% of the portfolio which is below its target of 25.
- There is not one single currency to single out in the G10 space as it was a broad move for the USD but there is a lot of room for the USD to go higher depending on the data and the most watched one next week which is the nonfarm payrolls.
- In Emerging Markets, very strong buying interest for the USD across the board. USDCNH spot is trading at 6.7000 targeting the highs of the year and the curve is starting to widen. USDKRW had also a big boost higher in the New York time zone, higher 1%, as well as USDBRL. It will be interesting to see if foreign investors continue to buy EM bonds with the likelihood of a rate hike in the US increasing.
Foreign exchange movements
- Volatilities are in demand in general after the weekend comments, especially for dates such as NFP and BoJ (interests to buy USD calls).
- Volatilities in the GBP dropped a lot since Brexit with not much interest the past few weeks but now it seems that the market is short gamma for that pair.
- US Treasuries yields rose following the speeches of Yellen and Fisher with the market trying now to position itself for a possible two rate hikes this year. The chance of a rate hike increased to 42% for September from 26% last week and there is a 17% chance for two rates hikes this year now priced in.
- The biggest rate move in the curve was in the five-year area with rates higher by 7 basis points compared to 5 bps for the 10-year.
- The rates in Europe were fairly quiet with the bunds stable at minus 0.07%.
- US stocks slipped in a volatile session as Fed comments fuelled speculation interest rates could rise as soon as next month.
- S&P 500 finished the day down 0.3%, logging a weekly drop of 0.7%. DJIA closed a second week of decline, off 0.9%. Nasdaq bucked the trend to rise 0.1%, but still fell 0.4% on the week, snapping its eight-week winning streak.
- Herbalife shed 2.3% on news that Carl Icahn has discussed selling his stake in the nutritional-products company to a group including Herbalife’s arch-nemesis Bill Ackman. However, in a twist late Friday, Icahn was said to have purchased 2.3 million shares, increasing his stake to 20.8% and reversing an earlier decline in the stock price, which rose 4% after hours following the statement.
- Anheuser-Busch InBev (down 0.05%) warned Friday its beer mega-merger with SABMiller (up 0.27%) could lead to thousands of job losses in the coming years.
- The Stoxx Europe 600 closed up 0.5%, with all but the consumer-services sector ended higher.
- Volkswagen rose 2.2% after the German auto maker reached an agreement with about 650 US franchise dealers affected by the company’s diesel-emissions scandal.
- Amec Foster Wheeler surged 6.6% after Morgan Stanley upgraded the energy engineering company to overweight from equal-weight.
- Beijing Airport (694 HK): Cut to underperform at Daiwa
- Brilliance Auto (1114 HK): Cut to hold at Daiwa
- China Everbright Bank (601818 CH): Cut to reduce at HSBC
- MGM China (2282 HK): Cut to reduce at Guotai Junan
- ABC (1288) interim net profit up 0.8% YoY to RMB105.1bn beats est; NII down 9.36% YoY to RMB199bn; net fees and commissions income up 7.27% YoY to RMB51.1bn; NPL ratio 2.4%, up from 2.39% in previous three months; Net interest margin narrowed to 2.31% from 2.78% a year earlier
- Sinopec(386) interim net down 21.65% YoY to RMB19.9bn as oil's collapse overpowered the boost from cheaper crude used to make fuels
- GCL Poly (3800) to buy Sunedison’s solar materials business for $150mln
- BYD(1211) interim net RMB2.26bn slightly missed est. RMB2.28bn
- CPIC (2601) interim net down 45.7% YoY to RMB 6.14bn, as per co’s earlier announced profit warning
- HK Ppty: existing home px down 0.2% WoW, slightly softened after a sharp rally in the preceding week. (Centaline). Residential site in Yuen Long draws more bidders as value drops (HKET)
- COLI(688)’s One Kai Tak project was 10x oversubscribed (Singtao)
- CR Land (1109) is confident about the property market in the 2nd half and lifted the full-year contracted sales target by 10% to RMB105.6bn
- China Shenhua (1088) interim net profit down 19.32% YoY to RMB10.83bn
- GF Sec(1776) interim net profit down 52.1% YoY to RMB 4.03bn
- Guolian Sec (1456) interim net profit down 65.05%YoY to RMB334mln
- Goldwind (2208) interim net profit up 16.4%YoY to RMB 1.45bn
- CMOC (3993.HK) interim net profit up 10.56% YoY to RMB512mln
- Greatwall Motor (2333) interim net profit up 4.42% YoY to RMB4.9bn
- PICC P&C (2328) interim net profit down 26.17% YoY to RMB10.65bn while gross premium income up 10.71% YoY to RMB161.9bn
- Sino Biopharm (1177) interim net profit up 8.71% YoY to HK$1.01bn, an interim dividend of HK1.5 cents was declared.
- Brilliance (1114) interim net profit down 5.68% YoY to RMB1.8bn; interim dividend of HK11 cents was declared.
- Yanzhou Coal (1171) interim net profit up 16.2% to RMB 592.4mln (in Chinese accounting standard)
- Fuyao Glass(3606) interim net up 16.7% YoY to RMB 1.4bn
- Xiamen Port (3378) interim net profit up 21.01% YoY to RMB127mln
- SH Electric (2727) interim net profit down 10.9%YoY to RMB1.25bn. Company acquired 3.23% equity in a wind power company from the controlling shareholder at RMB33.6mln
- Sino-Ocean Gp (3377)‘s subsidiary Sino-Ocean Land interim net profit after tax down 13.55% YoY to RMB1.85bn
- Dongfeng Gp (489) president Li expects 2H industry sales growth to be single-digit
- CGN Mining (1164) interim net profit up 263%YoY to HK$262mln
- Shenyang Public (747) interim net profit up 679% YoY to RMB 8.85mln
- CNBM (3323) interim net profit down 86.13% YoY to RMB110mln
- CEB Bank (6818) interim net profit up1.22% YoY to RMB16.44bn
- Ali Pictures (1060) interim loss expanded to RMB466mln, against a loss of RMB152mln yr ago
- China Huirong (1290) interim net profit down 94.19% YoY to RMB3.25mln
- Avic Int'l (232) interim profit swung into loss of HK$353mln vs a profit of HK$518mln yr ago.
- YOFC (6869) interim net profit up16.33% YoY to RMB355mln
- Yurun Food (1068) interim loss narrowed to HK$672mln
- MCC (1618) 2Q new contracted amount up 19.2% YoY to RMB131.6bn
- AAC (2018) said will not change operation model after blue-chip inclusion
- Country Garden(2007) Chuang (298) sells China project to co for RMB1.3bn
- Aeon Financial (8570 JP): Cut to neutral at Macquarie
- ANA (9202 JP): Raised to outperform at SMBC Nikko
- Kao Corp (4452 JP): Rated new buy at Haitong International
- Rengo (3941 JP): Raised to outperform from neutral at Daiwa
- HIS (9603 JP): Reports nine-month results; Q3 operating loss ¥648mln vs analyst est. ¥127mln profit
- Kabu.com Securities (8703 JP): Plans 1H dividend of ¥6/shr, unchanged y/y
- Kansai Paint (4613 JP): In talks to buy Saudi Aramco coatings supplier
- PanaHome (1924 JP): Targets 1H dividend of ¥11/shr vs ¥10 year ago
- Recruit (6098 JP): Cuts size of secondary offering to 57.5mln shares from 61.1mln
- Tokyo TY Financial (7173 JP): Confirms ShinGinko Tokyo, Tokyo Tomin Bank, Yachiyo Bank to merge into Kiraboshi Bank, which will be based in Aoyama, Tokyo (see earlier Nikkei story)
- Corporate Travel (CTD@AU) cut to hold vs buy at Bell Potter
- Retail Food Group (RFG@AU) cut to sell vs buy at UBS
- Regis Healthcare (REG@AU)) raised to buy vs neutral at UBS
- DUET Group (DUE@AU) cut to neutral vs buy at Goldman Sachs
- Breville Group (BRG@AU) cut to hold vs buy at Wilsons
- Chorus (CNU@NZ) full-year net income flat at NZ$91mln
- Auckland Airport (AIA@NZ) full-year earnings
- Estia Health (EHE@AU) full-year earnings
- Beach Energy (BPT@AU) full-year earnings
- Infigen Energy (IFN@AU) full-year earnings
- Reliance Worldwide (RWC@AU) full-year earnings
- Stride Property (STR@NZ) annual meeting
- BHP Billiton (BHP@AU): Samarco to present dam burst probe results on August 29
- Rio Tinto (RIO@AU) to make India its services hub over next five years
Source: CIMB / Bloomberg
it will still be data dependant. Photo: iStock
– Edited by Gayle Bryant
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